The attraction effect reveals that people do not compare alternatives independently of one another. Instead, they make comparisons, such that preferences between two alternatives can be reversed by adding or removing otherwise irrelevant alternatives. This behaviour is particularly difficult for rational models of decision making to explain since such models require the independent evaluation of alternatives. As such these models describe preference reversal behaviour as irrational. This thesis examines what rational decision making should look like once a person's cognitive bounds have been taken into account. The key finding is that contextual preference reversals like the attraction effect, far from being irrational, actually result from people making better decisions than they would if they assessed alternatives independently of one another. The research was grouped into three objectives concerning the attraction effect and the rationality of human cognition. The first of these was to identify under what conditions people exhibit the attraction effect, and what consequences the behaviour has for the outcomes they experience. Two experiments revealed that the effect is only exhibited in choice sets where alternatives are approximately equal in value and therefore hard to tell apart. This finding also means that the potential negative consequences of exhibiting the attraction effect are very small, because it only occurs when alternatives are similar in value. The second objective was to develop a computationally rational model of the attraction effect. Computational rationality is an approach that identifies what the optimal behaviour is given the constraints imposed by cognition, and the environment. Our model reveals why people exhibit the attraction effect. With the assumption that people cannot calculate expected value perfectly accurately, the model shows that in choices between prospects, the attraction effect actually results in decisions with a higher expected value. This is because noisy expected value estimates can be improved by taking into account the contextual information provided by the other alternatives in a choice set. The final objective was to provide evidence for our model, and the computational rationality approach, by making a novel prediction. We conducted an experiment to test the model's prediction that the attraction effect should be much reduced in the loss domain. We replicated existing attraction effect studies and extended them to the loss domain. The results replicated previous results in the gain domain and simultaneously revealed the novel finding that people did not exhibit the effect in the loss domain. People exhibit the attraction effect as a result of making the best decision possible given the cognitive resources they have. Understanding decision making as computationally rational can provide deep insights into existing phenomena. The method allows us to ascertain the causal link between cognitive mechanisms, a person's goal, and their decision making.

The majority of the research conducted on consumer choice phenomena focuses on how choices are made and the processes that lead up to those choices. While these are essential aspects within the breadth of choice knowledge that exists today, little research has been conducted on the options that are rejected during this process. Thus, the overarching goal of this dissertation is gain an understanding of consumer choice processes and outcomes through the lens of a nearly chosen alternative. Specifically, this dissertation investigates how the decision process can cause a close second option to be rejected when the chosen option is found to be unavailable.As a means of achieving these goals, I first demonstrate the phenomenon that consumers do not always select a close second option when the first choice option is unavailable, contrary to the prediction of economic rationality. Next, I propose that the decision process itself, specifically the use of a tie-breaking attribute to differentiate between close options, triggers a choice outcome that does not include the original second choice option, but rather an alternative that possesses this tie-breaking attribute. Finally, I examine the implications that the preference reversal phenomenon described above has for retailers and manufacturers.My original interest in this phenomenon stems from anecdotal evidence provided by a variety of informants. Although this evidence helped me to recognize the prevalence of rejected second choice options, experimental design is used to investigate this phenomenon and the boundary conditions that confine this effect. Consequently, my dissertation consists of 6 experiments. Experiment 1 and a pilot study establish the effect and investigate the theoretical process that account for my findings. Experiments 2 through 4 rule out alternative explanations and add support towards the existence and prevalence of the effect. Finally, Experiments 5 and 6 explore the impact of these results for improving the performance of marketing managers. It is my belief that incorporating the dynamic effects of the second-most preferred option may ultimately lead to more accurate and sophisticated prediction of buyer choices, more effective retailing and personal selling strategies, and more profitable management of product line portfolios.

This dissertation consists of two central parts. Part one of the dissertation examines the impact of interactive restructuring on decision processes and outcomes. Five experimental studies show that consumers examine less information and engage in more compensatory decision processes when interactive restructuring tools are available. Consumers also increase their use of restructuring tools in cognitively challenging choice environments. The availability of a sorting tool improves objective and subjective decision quality when attributes are positively correlated, or when the number of alternatives in a choice set is large, but not when attributes are negatively correlated or choice sets are small. Greater use of interactive restructuring tools has deleterious effects on decision quality when attributes are negatively correlated. Under time pressure the availability of an interactive restructuring tool improves decision quality, even when attributes are negatively correlated, since time pressure limits tool overuse. Finally, the effects of multiple interactive restructuring tools on decision making vary by the types of tools that marketers make available to consumers. Part two of the dissertation explores the effects of visual design on consumer preferences and choice. Experiment 1 demonstrates preference reversals when visual separators are between product alternatives versus between product attributes. Experiment 2 shows that when product attributes are negatively correlated, visually separating alternatives improves decision quality but visually separating attributes hurts decision quality. Visual separators do not affect decision quality when attributes are positively correlated. Experiment 3 extends experiment 2 to show that visual separators enhance decision-making efficiency and can limit the extent to which consumers adapt to contextual changes in choice environments. Finally, experiment 4 shows that, under time pressure, both visual separators between attributes as well as visual separators between alternatives improve decision quality when attributes are negatively correlated.